Income Inequality Between and Within Population Groups: 1997-2010Author: Ayal Kimhi, Michal Shafir-TidharWorking PapersSeptember 18, 2012

Decomposition of income inequality in Israel by population sub-groups shows that neither the level of inequality nor its increase over the years can be explained by gaps in average income between population sub-groups.

At most, these gaps can explain a fifth of total inequality, while the remaining 80 percent are within population sub-groups. Among the notable gaps are those between households with various level of education of the head of household, although their contribution to inequality decreased somewhat over the years. Of secondary importance are gaps among population groups defined by nationality, gender and number of children. The importance of these gaps increased somewhat over the years. These results support the claim that an improved education system that will allow more people to compete for better-paying jobs is essential for reducing income gaps in Israel. Other policies that might contribute include job creation in the Arab sector, reducing commuting time between center and periphery through improved transportation infrastructure, making it easier for mothers to engage in gainful employment, and engaging the ultra-Orthodox males in the labor market. Still, further research is needed to better understand income disparities within population sub-groups and their determinants.